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Sydney dwelling values catch second wind off back of lower mortgage rates

29/3/2015

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CoreLogic RP Data Home Value Index Release

Sydney dwelling values surged 3% higher in March while the remaining capital cities showed a relatively flat month for capital gains.

Home values across the combined capital cities increased by 1.4 per cent in March 2015 according to the CoreLogic RP Data Home Value Index, driven by an exceptionally strong Sydney result where dwelling values were 3.0 per cent higher over the month. The latest indices reading shows capital city dwelling values moved 3.0 per cent higher over the first quarter of the year. CoreLogic RP Data head of research Tim Lawless said, "although value growth has started 2015 on a strong note, the annual rate of growth has moderated back to 7.4 per cent, which is the slowest annual growth rate since September 2013."


Index results as at March 31, 2015




Sydney remains the standout capital growth performer, with values rising by 3.0 per cent over the month, 5.8 per cent over the quarter and 13.9 per cent over the year. With stronger housing market conditions over the first three months of the year, annual home value growth across the Sydney market has rebounded after slowing to 12.4 per cent in December 2014. Sydney is the only housing market where dwelling value growth remains in double digits, with the next strongest performer, Melbourne, showing a much lower rate of annual capital gain at just 5.6 per cent.

Each of the remaining capital cities have recorded an annual rate of growth which is less than three per cent, with values having declined across Perth, Darwin and Hobart over the year.

Since home values began their current growth phase in June 2012, dwelling values across the combined capital cities have increased by 24.3 per cent. "Most of this growth is emanating from Sydney," Mr Lawless said.

"Over the current growth phase, Sydney dwelling values have increased by 38.8 per cent with Melbourne second strongest at 23.6 per cent. On the other hand, total dwelling value growth over the current cycle has been less than 10 per cent in Adelaide, Hobart and Canberra.

"Combined capital city home values have increased by 3.0 per cent over the first quarter of 2015. While that rate of growth is strong it is important to note that it is lower than the 3.5 per cent increase in home values over the first quarter of 2014," he said.

Based on the March results, Sydney’s growth trend appears to have disengaged from the rest of the capital city housing markets in terms of demand and subsequently in terms of value growth. The 5.8 per cent growth in Sydney dwelling values over the first quarter is the strongest quarterly growth rate since home values increased by 6.2 per cent over the three months to April 2009. The strength of the Sydney housing market currently is further highlighted by the fact that since the Reserve Bank cut official interest rates to 2.25 per cent at the beginning of February, auction clearance rates have been above 80 per cent each week.

Melbourne has also seen a fairly strong first quarter with home values rising 3.5 per cent. Similar to Sydney, auction clearance rates have recorded a noticeable improvement since the February interest rate cut.

While dwelling values continue to rise across most cities, weekly rents are failing to keep pace. Across the combined capital cities dwelling rents have risen by just 1.7 per cent over the past year which is a stark contrast to the 7.4 per cent capital gain in dwelling values over the same period. Sydney is showing the highest increase in weekly rents over the year at 3.3 per cent, while Perth has shown the most substantial correction, with weekly rents down 4.1 per cent over the past twelve months. The fact that dwelling values are moving higher at a much faster pace than rents is causing gross rental yields to consistently compress across each of the capital cities.

Since mid-2013, the average gross rental yield across Australia’s combined capital cities has reduced from 4.3 per cent down to 3.6 per cent. Gross rental yields are now approaching record lows in both Melbourne and Sydney at 3.3 per cent and 3.6 per cent respectively.

Mr Lawless said the latest housing market data is likely to present a further challenge for the Reserve Bank when they deliberate interest rate settings next week.

"Despite the headwinds of softer labour markets, very low rental yields, increased oversight on lending conditions and heightened economic uncertainty, historically low mortgage rates appear to be adding further stimulus to the housing market, albeit that stimulus is largely being felt in Sydney.

"Since the previous rate cut we have seen auction clearance rates surge higher and activity across CoreLogic mortgage platforms has moved to new record levels."

"Clearly the vast majority of growth in dwelling values can be attributed to a very strong Sydney market that is largely fuelled by investment demand. The interest from investors is understandable, with housing currently offering up strong capital gains.

"With the growth curve in Sydney now well advanced and rental yields approaching historically low levels, prospective investors may be wise to use some caution when considering their investment options."

"Although household income growth is minimal, Sydney’s housing market continues to reach new record highs, with values increasing over the past 35 months. It does pose the question of how much longer the growth can persist.

"When the Sydney housing market starts to lose momentum, there is some risk that recent investors could be left holding a very expensive but low yielding asset with a lower than expected rate of capital gain over the coming years. From there it will be interesting to see if they bide their time in the housing market or exit to other asset classes with a stronger return profile," Mr Lawless said.

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Finance your Renovation

16/3/2015

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There are plenty of different ways you can fund your renovation and we can talk you through these options to find the one best suited to your budget and project size.

Here are some of the options we may discuss with you.

Home equity

If there is an available amount of equity in your home, you can use this to access credit up to an approved limit.

What is equity? It’s the difference between the value of your home and the money you owe. For example, if your home is worth $700,000 and your home loan is $500,000, then you have $200,000 equity in your home.

You can generally borrow up to 80% of your home’s value (known as 80% of your Loan-to-Value Ratio). For a home worth $700,000 this would mean you could borrow $560,000, so if you already have a home loan of $500,000, this leaves $60,000 available to borrow for renovations. You can borrow a higher amount if you take out lenders mortgage insurance, but it is important to speak to your mortgage broker about the risks involved.

Construction loan

This type of loan is not based on the property’s current value, but on a predicted value at completion.

Let’s say your new home is valued at $900,000 and the lender is willing to lend 80%, this would equate to total borrowings of $720,000. After taking away your existing home loan of $500,000, this would leave $220,000 available to borrow as a construction loan.

Unlike a regular loan that forwards all the money you borrowed on the loan settlement day, construction loans break the total amount down into components. Funds are drawn down progressively as you pay for each stage of the build, and when the builder invoices for a final time the lender pays it using the remainder of funds in your construction loan.

A benefit of this type of loan is that interest is only payable on the money drawn down.

Redraw / Top up

If your current home loan has a redraw facility and you’ve paid off more than your minimum repayments, you may be able to simply withdraw the extra money you’ve paid into your home loan to pay for your project costs. 

Top up allows you to borrow funds on your existing home loan without taking out a separate loan.

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Sharing Property Ownership

16/3/2015

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Cut the cost of property ownership in half by buying with a family member or friend. Save only half a deposit, pay only half the mortgage and cover only half of the bills. Sounds tempting, doesn’t it?

Property co-ownership is a great way to get a foot in the door at a reduced price but when it comes to mixing money and friendship, there’s plenty that can go wrong unless you take these important steps to forge a successful partnership.

1.Agree on the big picture

Talk together about your reasons for wanting to buy, your goals for owning a property and your timeframe for selling. You should both have similar mindsets and objectives.

2.Put it in writing

Have a legal ‘co-ownership’ agreement prepared that outlines the rights and obligations of each person with a share in the property. It should provide a formula for either of the co-owners to exit the investment – for example, they may have a change in financial circumstance or want to purchase a property with their new partner.

The agreement should also include a mediation clause that outlines how disagreements should be resolved.

3.Know your group finance options

A joint mortgage is one way a group of property buyers can apply for a mortgage as it allows them to combine their incomes in order to qualify for a higher loan amount than they would individually. As co-borrowers, you and your partner are held equally liable for repayment of the loan – so if one person stops making payments or makes late payments, the financial responsibility will fall to the others listed on the mortgage to make up for these payments.

‘Tenants in common’ is another way to consider structuring your lending. It allows you to have equal or unequal shares in the property, so one of you could own 40 percent and the other 60 percent.

As co-ownership introduces more complexity than a typical individual owner-occupier or investor purchase, you should ensure you choose a borrowing arrangement that protects your investment.

4.Seek advice

Structure your lending to be as flexible as possible to consider future changes in personal or financial circumstance. We can sit down with you to discuss some ‘what if’ scenarios, such as what to do if your partner suffers a reduction in income or is made redundant.

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Interest rates unchanged. Cash rate 2.25%

2/3/2015

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Statement by Glenn Stevens, Governor: Monetary Policy DecisionAt its meeting today, the Board decided to leave the cash rate unchanged at 2.25 per cent.

Growth in the global economy continued at a moderate pace in 2014. A similar performance is expected by most observers in 2015, with the US economy continuing to strengthen, even as China’s growth slows a little from last year’s outcome.

Commodity prices have declined over the past year, in some cases sharply. The price of oil in particular has fallen significantly. These trends appear to reflect a combination of lower growth in demand and, more importantly, significant increases in supply. The much lower levels of energy prices will act to strengthen global output and temporarily to lower CPI inflation rates.

Financial conditions are very accommodative globally, with long-term borrowing rates for several major sovereigns at all-time lows over recent months. Some risk spreads have widened a little but overall financing costs for creditworthy borrowers remain remarkably low.

In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year. The economy is likely to be operating with a degree of spare capacity for some time yet. With growth in labour costs subdued, it appears likely that inflation will remain consistent with the target over the next one to two years, even with a lower exchange rate.

Credit is recording moderate growth overall, with stronger growth in lending to investors in housing assets. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates.

The Australian dollar has declined noticeably against a rising US dollar, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.

At today’s meeting the Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will further assess the case for such action at forthcoming meetings.

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